A CarMax lot holds hundreds of used cars and trucks in Gaithersburg, Md.
Consumers with good credit are buying more used vehicles, likely because used vehicles are relatively more available and relatively more affordable than new ones, says a new report from Experian Automotive, on auto finance in the second quarter.
The downside is for those consumers with subprime credit histories or with no established credit history. Subprime share of auto loans and leases is getting thinner.
Prime-risk borrowers have always dominated the new-car market. But today, they’re buying so many used cars, subprime share is thinning out among used vehicles, too, according to Melinda Zabritski, director, product management for Experian Automotive.
For new and used cars and trucks combined, borrowers in the prime risk category accounted for 65.3% of auto loans and leases originated in the second quarter of 2022. Pre-pandemic, in the second quarter of 2019, that share was 61.4%, Experian Automotive said.
For new vehicles only, prime-risk customers accounted for 81.3% share in the second quarter, up from 74.4% in the second quarter of 2019, the report said. That’s to be expected, considering the average new-vehicle loan payment was $667 in the second quarter, up from $582 just a year ago.
Experian Automotive defines prime risk as borrowers with credit scores 661 and higher.
What’s crowding buyers with subprime credit out of the market? A computer chip shortage is driving a new-vehicle shortage, and the new-vehicle shortage in turn is driving a used-vehicle shortage.
That’s because with new-car sales down, fewer buyers are trading in their used cars and trucks when they buy a new one. High demand and low supply spell high prices. Rising interest rates don’t help.
Subprime share of new-vehicle financing was 18.7% in the second quarter, vs. 25.6% in Q2, 2019.
For used cars and trucks, prime-risk borrowers had a share of 54.8% in the second quarter, up from 51.2% for the second quarter of 2019. Subprime share was 45.2%, down from 48.9% in the second quarter of 2019, Experian Automotive said.
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